Home Depot Inc (HD) Stock Is Quickly Becoming a Great E-Commerce Investment

The home improvement giant has figured out the art and the science of omnichannel retailing

Last month, Home Depot Inc (NYSE:HD) unveiled a clever little tool that allows consumers that own Google Home devices — the voice-activated smart-home interface from Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) — to order goods from the retailer with nothing more than a spoken word. It may not be a reason in and of itself to buy HD stock, but it’s certainly an interesting side story.

And, viewed in the right context, it may well be a reason to pick up some HD stock. For Home Depot’s voice-ordering option is a microcosm of how well this hardware store is winning the online war it’s waging — not just against Lowe’s Companies, Inc. (NYSE:LOW), but against Amazon.com, Inc. (NASDAQ:AMZN) as well.

A Surprising E-Commerce Powerhouse

It’s cute, but hardly game-changing. Amazon has already mastered the art of voice-based purchases and, besides, you’ll likely have to step foot in a Home Depot to make a buying decision and pick up your merchandise anyway.

There’s so much more to Home Depot’s online presence than just the Google Home voice-activated feature, though. It’s quickly becoming not just a big chunk of its business, but a business driver. In the most recently reported quarter, HD online sales were up 23%.

E-commerce still only accounts for less than 7% of the home improvement retailer’s total revenue, but it’s a proportion that’s growing fast now that the company has gotten more serious about this front, investing $300 million beginning in 2015 to enhance what it is capable of doing via the internet.

Thing is, Home Depot recognizes the threat that Amazon still poses to its business, and also recognizes the potential cost of trying to deliver bulky items via UPS or FedEx. It’s solution solves both potential problems in one fell swoop. That is, it uses its stores as fulfillment and pickup centers; 43% of Home Depot’s online orders are picked up in a store, setting the stage for driving more sales. As Kevin Hofmann, Home Depot senior vice president and president of online, once explained it:

“We always talk about Home Depot [as a store] for what you thought you wanted but you leave with what you really needed. So, as you come into pick up that order, [we’re thinking about] how we can remind you of the other great values and the other great offers we’ve got in our store. That’s another area of focus for us: how we leverage and monetize those footsteps.”

It’s an opportunity Amazon simply doesn’t have.

The melding of online and offline operations isn’t just a matter of offering shoppers what’s available at their nearby store, however. Home Depot is using its technology to manage customers as well as manage the flow of inventory. An online buyer will be presented with several pickup options at various nearby stores, complete with counts of inventory on hand so as not to waste a trip.

The retailer has also been wise enough to equip store associates with digital tools that give them the exact same information customers have, and more.

The end result? The company ranked seventh in this year’s list of Internet Retailer Excellence Awards, as picked by Digital Commerce 360. That’s impressive, considering it was up against dedicated e-commerce outfits like Amazon, Dollar Shave Club and Wayfair Inc (NYSE:W). At the end of the day, there’s only so much e-tailing you can finesse with lumber and plumbing supplies.

Bottom Line on HD Stock

To be fair, home improvement rival Lowe’s has done some solid things of its own on the e-commerce front. They pale in comparison to the thought Home Depot has put into its omnichannel machine, though. Hofmann has the retailer thinking like an e-commerce company, to the point where the “e” has been removed from the term. To Home Depot, it’s all just “commerce,” drummed up from different directions and tended in different ways.

The company is still subject to the cyclical nature of the home-building market as well as broader economic cycles. To the extent Home Depot seemed like it should be at risk of the growing preference for online, rather than in-store, shopping, it isn’t.

And that does make HD stock a name worth considering.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.